Tallahassee, FL - Citizens Property Insurance Corp will return to the private re-insurance market to help pay for hurricane claims during the upcoming season in an attempt to begin weaning the state-backed insurer off taxpayer assessments in the event of a catastrophic storm.
Meeting via conference call, Citizen’s governing board Wednesday approved the purchase of $900 million in pre-event insurance coverage and another $400 million in private reinsurance as it prepares for the 2011 hurricane season now only a few weeks away.
It’s the first time since 2006, that Citizens is purchasing private reinsurance to handle claims in excess of the amount it can handle with its own cash reserves and proceeds from the Florida Hurricane Catastrophe Fund. The decision comes despite having to pay about $86 million in premiums for the 3 percent chance that private reinsurance will be needed.
“If we don’t’ start now we will never catch up.” said Citizens governing board chairman James Malone, referring to the decision to jump back into a private market that has been prohibitively expensive the past several years.
The decision came over the objections of at least two board members who said the cost to insure through the private market remains too high.
“The risk of (needing reinsurance) is so low and the price is so high that I don’t think we’re getting a great value,” said board member Carlos Lacasa, who despite that critique voted for the purchase.
The board also approved spending $460 million for $6.6 billion in mandatory coverage from the Florida Hurricane Catastrophe Fund, but chose not to self-insure for amounts over that cap.
Citizens officials, with 1.3 million policies, say the state-backed insurer is beginning the long process of transferring risk from Florida taxpayers to the private market, a process that will take several years and more than a little luck from Mother Nature, because Citizens’ rate increases are capped at 10 percent a year.
Until 2010, Citizens rates had been frozen by statute at the level that had been established in 2006. Lawmakers last year established a “glide path” to impose annual rate increases of up to 10 percent until the insurer is actuarially sound. A measure (SB 1714) filed this year to increase the cap to 25 percent failed.
Citizens’ now relies on assessments from all policyholders if hurricane losses exceed the amount of cash reserves, CAT fund and re-insurance coverage. Citizens now has a claims paying capacity of $14.7 billion.
With no major hurricanes in the past five years, Citizens has been able to amass a reserve totaling $5.6 billion. The cache will continue to grow unless the state gets hit with a storm, but the growing balance is opening up options for the insurer to finance its risk, Citizens’ CFO Sharon Binnum said on the call.
“This allows us to take a very small step (in moving risk from taxpayers to the private sector),” she said.
The move Wednesday received favorable comments from at least one environmental group, which chastised the Legislature for not taking more dramatic steps to reduce the risk of assessments on all policyholders while subsidizing development on Florida’s fragile coastline.
“We understand how important it is that we spread our state’s hurricane risk in global markets instead of concentrating it within Florida, and hope that all Floridians embrace the decision made by the Citizens Board and senior staff,” said Jay Liles, policy consultant for the Florida Wildlife Federation.